Google Is Paris Hilton, Only Hotter

Death, taxes, and blowout Google (Nasdaq: GOOG  ) quarters seemed to be life's three certainties, until the company produced a merely mortal second-quarter performance back in July. For those scoring at home, Google is back up there with death and taxes after a spectacular third-quarter outing.

Google earned $1.32 a share on a 96% surge in revenue. Backing out stock-based compensation, tax benefits, and a one-time research charge, the company earned $1.51 a share, streaking past Wall Street analysts' estimates of $1.35.

This news comes as a major relief to Google shareholders, since the company spent a good chunk of its second-quarter conference call over the summer talking down the prospects of its September period. Google refuses to provide guidance, but at the time, it was emphasizing the historical seasonal weakness during the third quarter to keep investor expectations in check.

But after Yahoo! (Nasdaq: YHOO  ) came through with solid earnings on Tuesday, it was only natural to expect the kind waters of online advertising to gush Google's way, too. In fact, Google went on to grow its top line twice as fast as Yahoo! and its 46% revenue growth spurt.

That's right, Google. You're hot. But please don't let it go to your head.

Even nitpickers will have to stretch to dwell on the report's minor shortcomings. Yes, free cash flow was off sequentially, but that was due to acquiring additional land and office space, as well as buying more production servers and networking equipment. Operating margins also failed to improve, despite the fact that advertising on its own sites grew faster than that of its lower-margin AdSense network. But who's going to complain about organic improvement?

Then again, the network revenue will bear watching in the coming quarters. Now that Yahoo! is beta-testing its AdSense clone, and companies such as Microsoft (Nasdaq: MSFT  ) and InterActiveCorp (Nasdaq: IACI  ) are starting to sell their own paid-search ads, Google will need to grow its own properties that much faster, or become even more aggressive in attracting and retaining third-party sites for its network. It already lost iVillage (Nasdaq: IVIL  ) to Yahoo!, and a bidding war is breaking out for the largest member of Google's network, Time Warner's (NYSE: TWX  ) America Online.

That's where Google's fat $7.6 billion in balance-sheet greenery will come in handy -- it gives the search king the ability to scoop up more online billboards to bring into its Google-ish fold.

Good looks. Loaded. Google is like Paris Hilton, only with intellectual charm and a killer fiscal personality.

That's hot.

Google is not an active recommendation in the Rule Breakers newsletter service, but it's got that offbeat approach to winning it all that seems to permeate many of the newsletter's picks. Check it out with a free 30-day trial.

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Longtime Fool contributor Rick Munarriz thinks that Google got robbed when it wasn't added to the S&P 500 recently. He does not own shares in any of the companies mentioned in this story. Time Warner is aMotley Fool Stock Advisornewsletter recommendation.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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